Affordable Care Act Legislation Affecting Small Employers Sparks Rare Bipartisanship

By Sandy Ahn and Sabrina Corlette

While it still feels like summer outside, many of us may be wondering what has frozen over as Congress takes a rare bipartisan move related to the Affordable Care Act (ACA): to change the definition of small employer for the small group market. Yesterday, the Health subcommittee of the House’s Energy and Commerce Committee had a hearing on H.R. 1624, a bill that if enacted, would repeal an ACA provision changing the definition of small employer from 1-100 employees beginning in 2016. It would instead allow states to determine the definition of the small group market. Currently, all states define it as between 1-50 employees. The ACA provision, if not repealed, would have major implications for the 3.4 million people who currently receive health insurance through their employers with 51-100 employees (referred to as mid-size employers). We previously wrote about this small employer definition under the ACA and summarized the risks and consequences for mid-size employers and their employees here.

House and Senate members of both parties support this bill and its Senate counterpart (S. 1099), but one dissenter is Mike Kreidler, Washington’s Insurance Commissioner and one of the witnesses for the Energy and Commerce Committee hearing. Commissioner Kreidler believes the ACA provision should be allowed to go into effect, arguing that a critical goal of the ACA was to reform the small group market to provide small employers with a minimum set of coverage benefits (i.e., essential health benefits package) and protections prohibiting insurers from basing premiums on characteristics like health status or gender, and limiting premium surcharges on characteristics like age. He argued that not only could small employers compete with larger employers by having a robust health benefits package, he indicated employees would have mandatory coverage for benefits like prescription drugs. (However, a Department of Health Human Services report found that most small employer plans pre-ACA covered most essential health benefit categories. To the extent there were differences between large and small employers, it was largely due to cost-sharing.)

Commissioner Kreidler also pointed out that the single risk pool of the small group market, in which mid-size employers must join if they want to buy fully-insured coverage, has the potential to lower premium rates for the small group market. He indicated that all but one of the twelve insurers filing small group market premiums for 2016 requested a rate decrease because of the expected entry of mid-size employers. However, he did not say whether mid-size employers in Washington would be paying more in 2016 for fully insured coverage compared to previous years. Commissioner Kreidler also acknowledged that while Washington is ready to implement the ACA definition in 2016, other states may need more time to transition. He suggested to Congress to keep the current ACA definition, but allow states that need it more time to transition to the small employer definition of 1-100 employees.

The other two witnesses-Monica Lindeen, Montana Commissioner of Securities and Insurance and State Auditor, and President of the National Association of Insurance Commissioners (NAIC) and Kurt Giesa, FSA, MAAA, Partner at Oliver Wyman-testified in support of repealing the definition in the ACA. Both Lindeen and Giesa emphasized that mid-size employers with young and healthy employees would see premium rate increases when required to shift to the small group market. They further argued that these employers would have strong incentives to leave the fully insured market altogether. Specifically, Commissioner Lindeen remarked that these employers would likely self-insure, particularly because they can protect themselves from undue risk with stop-loss insurance. Commissioner Lindeen and Mr. Giesa predict that, as larger and healthy employers leave the fully insured market, those left in the small group market will face rising premium rates, which could ultimately make coverage unaffordable for small employers and their employees. As a result, Montana is one state that has taken advantage of the administration’s transitional policy for mid-sized employers and is allowing insurers t o keep groups of 51-100 in the large group market in 2016. Commissioner Lindeen noted modest 2016 rate increase requests of 3 to 5 percent from insurers in the small group market in Montana.

Most of the subcommittee members present at the hearing seemed to be in support of the bill. They raised concerns that the ACA’s current definition effective in 2016 would raise premiums for mid-size employers. Others cited the costs for mid-size employers associated with small group market reforms and its overall effect on jobs, ability of small businesses to grow, and the economy. Two subcommittee members, however, Jan Schakowsky (IL) and Kurt Schrader (OR), made comments suggesting they had reservations about the bill, noting that an overall goal of the ACA was to create a less fragmented small group market. Congresswoman Schakowsky also pointed out that prohibiting insurers from using gender to set premium rates offers additional consumer protections for mid-size employers and their employees. As we noted in our previous post, however, how much mid-size businesses are affected by gender rating is unclear, as very little data is currently available.

All three of the witnesses did agree that if Congress intends to repeal the ACA’s definition of the small group market, it must act quickly. Time is of the essence since insurers have filed rates for 2016 and both insurers and employers need to know final rates in order to make arrangements to offer coverage for next year. Since it’s already September, changing the ACA’s definition will likely mean last minute scrambling for insurers and state regulators in a number of states. For example, Commissioner Kreidler predicts that Washington insurers would request premium increases if the bill repealing the ACA definition is enacted. Although the bill would allow states to choose the 1-100 definition of small employer, in Washington this would require a change in state law- highly unlikely to happen before 2016.

As noted in a previous post, we’re of the general opinion that the risks of shifting the definition of the small group market to 100 in 2016 outweigh the benefits. While both sides at the hearing made excellent points supporting or opposing the bill, the truth is that it’s difficult at this point to predict the impact of a nationwide change to the small group market definition. We have little data on how many and what types of employers will be impacted and the extent of any positive or negative premium effects.  And no one really knows how many mid-size employers will choose to opt out of the fully insured market altogether. As is so often the case, policymakers must vote yea or nay on this legislation with less than a clear picture of what will result.

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